lulu final final-1

Company ValuationAndrew Slade, Kate Baxter, Rachel Snyder, Tucker Byrne, Max Beatty, Tianyu Yang

2

Lululemon is a designer and retailer of technical athletic apparelMission statement: “Creating components for people to live longer, healthier, fun lives”

Net revenue F2014

Q1 2014 Q1 2015 Stores worldwide

$1,797 (million)

$385 (million) $423 (million) 302

3

Entered Hong Kong

Lululemon’s historical milestones highlight sustained success

2007 2008 2009 2010 2011 2012 2013 20140

200400600800

100012001400160018002000

Net Revenue

Reve

nue

(milli

ons)

Lululemon IPO

Launched Ivivva brand

Yoga Pant Recall

Laurent Potdevin named CEO

Deal made to enter Middle

East

4

Lululemon Athletica is currently valued at $64.50 by the market, we value it at $68.80 per share

• Brand recognized for high quality products and unique customer experiences

Leader in Premium Athleisure Clothing

• Online retail sales will contribute to revenue growth

• Continued growth potential in new store locations

• Successful entry into international markets

Development of Distribution Channels

• Promising future in men’s apparel • Teen brand ‘Ivivva’ promotes long-term growth

Expansion into New Markets

• Lululemon is undervalued• Growth opportunities crucial to long term

successValuation

Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation

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successValuation


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Healthy Lifestyle

FashionPerformance

Lululemon is positioned to benefit from a multitude of consumer preferences


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High Price

Low Price

High QualityLow Quality

Lululemon’s high quality and innovative products allow them to command a premium price


8

Unique brand culture complements high quality products to cultivate loyal customer base

Lifestyle & Community

Store Experience

Ambassadors

Exclusive Products


9


Minimal discounts and premium prices create a high profit margin while out-pacing competitors

Ratios Lululemon Nike

Industry

Average

Net Profit Margin(5 yr Average)

16.95% 10.10% 8.30%

Inventory Turnover 4.41 3.99 3.30

Revenue 5 Yr Growth 31.74% 9.98% 10.05%

Lululemon ‘Wunder Under’

$92

Nike‘Dri-FIT

Legging’$36

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successValuation


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Global increase in e-commerce shopping presents opportunity for sales growth

2014 2015 2016 2017 2018 2019$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

0%10%20%30%40%50%60%70%80%90%100%

$1.3$1.7

$2.1$2.5

$3.0

$3.6

26.30% 24.50% 22.30% 21.50% 20.50% 18.60%

Retail E-Commerce Sales Worldwide

In tr

illio

n ($

)

Grow

th R

ate

(%)

Source: eMarketer, July 2015: Retail Ecommerce Sales Worldwide, 2014-2019


EEEEE

12

Expansion of Lulu’s website will create increased sales-revenue in the short-term


2010 2011 2012 2013 2014 2015 2016 2017 2018 20190.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

Lululemon Revenue Projection

OtherE-commerceCorporate-Owned Stores

Year

In m

illio

n $

18.8% e-commerce CAGR

EE EEE

13

E-Commerce sales growth leads all segments with 42% profit margin

2010 2011 2012 2013 2014 2015 2016 2017 2018 20190

100

200

300

400

500

600

700

800

0%5%10%15%20%25%30%35%40%45%50%

Revenue and Profit Margin From E-Commerce Sale

Revenue From E-Commerce

Year

Rev

enue

(m

illio

ns)

Profi

t M

argi

n (%

)

EEEEE


14

Increasing number of new stores will drive revenue growth worldwide

2010 2011 2012 2013 2014 2015 2016 2017 2018 20190

100

200

300

400

500

600

700

-5%

0%

5%

10%

15%

20%

25%

Projection of Retail Stores and Same Store Sale Growth Rate

Total StoresSame Store Sale Growth Rate

# o

f St

ores


EEEEE

15

Global sports apparel industry set to grow at 4.3%, allowing Lulu to grow sales overseas

2012 2013 2014 2015 2016 2017 2018 2019$130

$140

$150

$160

$170

$180

$190Global Sports Apparel Market

Billi

ons

($)

4.3% CAGR


Euromonitor International, May 2015: Apparel and Footwear in 2015-Trends, Developments, and Prospects

16

Short-term capital expenditures abroad will yield long-term growth

Major cities in China, Australia, New Zealand & Europe Capital expenditures grew 51% over past 5 years Introduces stores to first-time customers and improves brand awareness


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successValuation


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Lululemon men’s line offers stylish, performance clothing to keep up with global cultural trends


Metal Vent Tech Henley ABC PantBonded Voyage Button

Down

Sundown Hoodie Pace Breaker Short Sundown Tank

$88.00

$58.00

$118.00

$98.00 $48.00

$128.00

19

Industry growth in revenues from men’s apparel gives Lululemon an incentive to capture the male market

2014 Men’s Apparel 2014 Women’s Apparel

Market Size: $662.1 Billion Market Size: $439.9 BillionEuromonitor International, May, 2015: Apparel and Footwear in 2015 -Trends, Developments, & Prospects


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Industry growth in revenues from men’s apparel gives Lululemon an incentive to capture the male market

2014 Men’s Apparel 2014 Women’s Apparel

Market Size: $662.1 Billion Market Size: $439.9 Billion

3.7%industry growth

Euromonitor International, May, 2015: Apparel and Footwear in 2015 -Trends, Developments, & Prospects

4.5%industry growth


21

Lululemon’s ‘ABC’ pants serve as a staple garment in the men’s line of clothing Go-to product for men Women can solve an unpleasant problem Revenue up 19% in first quarter


22

Promising venture into female teen market will bring brand loyalty and long-term profit

29 Ivviva Athletica stores (9.2% of total locations)

Children’s wear market valued at $160 billion

Brand exposure at young age creates long term relationships


Euromonitor International, July, 2015: Apparel and Footwear – Microfashion – Trends in Children’s wear

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successValuation


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Lululemon looks to maintain 11.4% CAGR of revenue through 2019

2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E0

500

1000

1500

2000

2500

3000

Lululemon Athletica Fiscal Year Revenues

Fisca

l Rev

enue

s (m

illion

s $)


Projected Revenue CAGR of 11.4%

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We believe that Lululemon is currently undervalued by the marketYear 201

2201

3201

42015

E2016

E2017E 2018E 2019E

Total Revenues 1370 1591 1797 2030 2274 2525 2803 3083Operating Costs ($) 994 1200 1421 1527 1649 1775 1909 2045

Operating Costs(%) 72.5% 75.4% 79.1% 75.2% 72.5% 70.3% 68.1% 66.3%

EBIT ($) 376 391 376 503 625 749 893 1037EBIT Margin (%) 27.5% 24.6% 20.9% 24.8% 27.5% 29.7% 31.9% 33.7%

(+) Dep.& Amort. 3.1% 3.1% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%

CAPX 6.8% 6.7% 6.7% 6.5% 6.5% 6.5% 6.5% 6.5%(-) Change in NWC 2.4% 3.1% -0.5% 1.2% 1.2% 1.2% 1.2% 1.2%

Free Cash Flow ($) 162 147 191 235 306 375 457 535

Enterprise Value: 8389Cash and Cash Equivalent: 664.5Equity Value: 9053Number of Shares: 131.6 millionCost of Equity: 8%WACC: 7.95%

Current Share Price: 64.50Estimated Share Value: 68.80


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Stock Price Range

Pessimistic Base Case Optimistic

Same Store Sale Growth Rate (2015-2019)

3.3% 3.5% 3.7%

Number of Stores Growth (2015-2019)

12% 13.97% 15%

Online Commerce Growth Rate(2015-2019)

17.2% 18.8% 20%

Stock Price $60.10 $68.80 $75.50Leader in Premium Athleisure Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation

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successValuation


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Appendix

Lululemon parameters that significantly affect the valuation and financial model


Topline Revenue 2014WACC

Cost of Goods Sold 2014Number of Shares

Total SG&A in 2019

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Lululemon’s key ratios underscore efficiency compared to industry competitors

Ratios Lululemon Nike Under Armour

Industry Average

Net Profit Margin (5 Yr average)

16.95% 10.10% 6.79% 8.30%

Return on Investment (5 Yr average)

29.0% 20.41% 15.22% 7.78%

Return on Assets (5 Yr average)

25.29% 15.18% 11.76% 8.46%

Inventory Turnover

4.41 3.99 2.34 3.30

Current Ratio 6.78 2.52 2.63 2.75Revenue 5 Yr Growth

31.74% 9.98% 29.21% 10.05%

Capital Spending 5 Yr Growth

50.52% 23.51% 47.92% 2.46%

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Price comparisons of basic clothing items across Lululemon competitors

Sports Bra

Basic Black Legging

Men’s (Running)

ShortsLululemon $58 $92 $64

Nike $26 $36 $38

Athleta $49 $79 -

Under Armour $25 $35 $45

Lucy $49 $89 -

Old Navy $12 $25 $26

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Recalls decreased revenue by $43.8 million, affecting short-term stock value & discrediting brand

17% of Lulu’s yoga pants recalled due to sheerness

Stock Impact Fell 6% on March 18th, 2013 (day of recall) Rebounded 24% by March 19th

Revenue (billions)1.561.571.581.591.6

1.611.621.631.64

Expected 2013Actual 2013

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Sales per sq. ft. illustrate strong sales efficiency & growth even with the movement towards online retail

2009 2010 2011 2012 2013 2014$0

$500

$1,000

$1,500

$2,000

$2,500

Lululemon Sales per Square Foot

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Overall growth in athletic apparel sales

Leader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation

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Lululemon faces few serious threats and weaknesses moving forward

Strengths: • Strong store• Unique brand and loyal

customers• Increasing revenues• High profit margin

Weaknesses:• Legal Issues• Product issues/recalls• High turnover rate of

management

Opportunities:• Increased distribution Network• Male market expansion• Growth in Online Business• Use healthy living trends to

advantage

Threats:• Increasing competition • Decreased consumer spending


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Examples of Lululemon ProductsPack-It Vest $108

City Summer Dress $118

Swiftly Tech ½ Zip $88 Hold Your Om II $52

Scuba Hoodie II $108

Sweaty or Not Bra $58

WunderUnder Luxtreme $102 Split Second Short

$54

37

Mobile applications strong contributor to direct-to-customer segment, increases brand exposure

Mobile Sales App

SeaWheeze ½ Marathon Training App


38

Social media highlights influencers to increase loyalty through continued contact with brand culture

“I’ll surf until my body says I can’t. It’s the best lifestyle I know.” – Jamie Sterling, local surf school owner in Hawaii

“Everyone liked “Jules Fuel” at the farmer’s market so I decided to just run with it.” - Julia Murray, Olympic skier & entrepreneurLeader in Premium Athletic Clothing - Development of Distribution Channels - Expansion into New Markets - Valuation

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Lululemon’s aspirational lifestyle brand appeals to the broad interests of its customer base

Men’s MarketWomen’s Market


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Lululemon is… Product: high quality, offers

performance and comfort

Price: premium, limited supply batches,

few items go on sale

Place: majority of sales in stores, online presence and

international market growing

Promotion: brand ambassadors, blogs, word of mouth, community focused,

weekly email lists

Target Market


41

Successful e-commerce initiative brings in $321.2m across 83 countries Free shipping and returns Mobile App: 6 Continents, 83 Countries,

$321.2million, 17.9% of total revenue Increase in brand popularity will drive in

store traffic What makes e-commerce so successful

& how does it compare to in store experience


lulu final final-1

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